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Blockchain Technologies in E-commerce: Social Shopping and Loyalty Program Applications

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Abstract

With the rapid advancement of cryptography and distributed computing systems, blockchain technologies are highly anticipated to transform many industries with better transparency, high security, and low transaction costs. However, the scalability and performance of blockchains are limiting their utility and suitability in online services, especially e-commerce. This paper provides a survey of blockchain technologies to highlight their benefits and challenges in online shopping. We, therefore, propose two blockchain-based e-commerce applications with detailed design guidelines: social shopping and loyalty program. The study contributes to the cumulative theoretical development of social computing and blockchains. It also provides a number of implications for academic bodies, platform operators, and developers of blockchain technologies.
adfa, p. 1, 2011.
© Springer-Verlag Berlin Heidelberg 2011
Blockchain Technologies in E-commerce:
Social Shopping and Loyalty Program Applications
Yi Han Lim1, Halimin Hashim1, Nigel Poo2, Danny Chiang Choon Poo3
and Hoang D. Nguyen1
1 University of Glasgow, Singapore, Singapore
2355358L@ student.gla.ac.uk, 2355332B@student.gla.ac.uk,
Harry.Nguyen@glasgow.ac.uk
2 Trolle, Singapore, Singapore
npoo31@gmail.com
3 National University of Singapore, Singapore
dpoo@comp.nus.edu.sg
Abstract. With the rapid advancement of cryptography and distributed compu-
ting systems, blockchain technologies are highly anticipated to transform many
industries with better transparency, high security, and low transaction costs.
However, the scalability and performance of blockchains are limiting their utility
and suitability in online services, especially e-commerce. This paper provides a
survey of blockchain technologies to highlight their benefits and challenges in
online shopping. We, therefore, propose two blockchain-based e-commerce ap-
plications with detailed design guidelines: social shopping and loyalty program.
The study contributes to the cumulative theoretical development of social com-
puting and blockchains. It also provides a number of implications for academic
bodies, platform operators, and developers of blockchain technologies.
Keywords: blockchain e-commerce social shopping loyalty program
transformation
1 Introduction
With the steady growth of communication and security technologies, blockchains have
emerged as digital innovations that would transform many industries and businesses
[1]. A blockchain is a shared, secured ledger, which is distributed across a network of
devices. These devices verify transactions in encrypted blocks among network partici-
pants, which are not just limited to cryptocurrency but any product of value.
In e-commerce, the adoption of blockchain technologies is highly anticipated; nev-
ertheless, the applicability of blockchains remains as limited due to the inherent scala-
bility and performance issues in major blockchains such as Bitcoin and Etherium. In
average, the power consumption for a Bitcoin transaction is 3 to 4 times higher than the
power consumption for 100,000 VISA transactions [2]. Therefore, this study investi-
gates blockchain technologies and applications to identify their benefits and challenges
in e-commerce. Moreover, we propose two blockchain-based applications with detailed
design and implementation of social shopping and loyalty program.
Based on the survey of blockchains, the study contributes to the cumulative devel-
opment of e-commerce and blockchains. It has also drawn out several insights and im-
plications for academic bodies and developers in social computing.
The structure of the paper is as follows. Firstly, we review the existing blockchain
technologies and applications in e-commerce in Sect. 2. Secondly, we present our pro-
posed solutions with the design guidelines for social shopping and loyalty program.
Lastly, Sect. 4 concludes our paper with findings and contributions in the final section.
2 Blockchain Technologies in E-commerce
Blockchain technology is a digital ledger that stores blocks of immutable transaction
that occurs in the system. Each transaction produces a hash which is generated using
the public key, the private key, the previous hash, the timestamp and transaction details
as shown in Fig. 1. The public key is essentially an address which allows participants
to identify each other, and the private key is used for authentication. The previous hash
is stored to link the blocks together. Before this transaction will be stored into a block,
it is broadcasted to the other nodes for consensus on the distributed peer-to-peer net-
work. These nodes will verify that the transaction has not been altered, and once it has
been approved by the majority of nodes only then it will be appended to a block.
Fig. 1. Blockchain Data Structure
With the hype of cryptocurrency, there is a growing list of blockchain technologies,
which were created with different purposes for various use cases. In this paper, we
review a number of major blockchain solutions as shown in Table 1.
Technology
Transactions
Per Second
Block Time
in Seconds
Security
Consensus
Bitcoin
7
~ 600
Medium
Proof of Work (PoW)
Ethereum
15 -25
~ 14 - 15
Medium
Proof of Work (PoW)
Qtum
> 17
120 - 180
Medium
Proof of Work (PoW)
Hyperledger
Fabric
3500#
120 - 300^
0.3 - 0.5
High
Proof of Agreement (PoA)
EOS
250&
0.5
Medium
Delegated Proof of Stake
(dPoS)
Aeternity
30
< 15
Medium
Hybrid Consensus:
Proof of Work (PoW) and
Proof of Stake (PoS)
BigchainDB
80
-
Varied
Proof of Stake (PoS)
#Published by Androulaki et al. [3].
^Benchmarked by Qassim Nasir et al. [4].
&Reported by Xu et al. [5].
Table 1. A Survey of Existing Blockchain Technologies
Bitcoin. Bitcoin is a cryptocurrency that is peer-to-peer with no trusted single au-
thority [6]. It is built on blockchain for the purpose of exchange and only executes rules
that are related to trading. Bitcoin, however, is vulnerable to threats such as theft and
hacking attacks despite heavily encrypted. As the first mover, the design of Bitcoin has
inspired many other blockchain technologies.
Ethereum. Ethereum is an open source, public blockchain app platform which was
proposed by Vitalik Buterin in 2013 [7]. It supports the modified version of Proof of
Work consensus and allows programming of various types of smart contracts within
the system. Ethereum is operating as cryptocurrency as a public distributed ledger for
transactions. Nevertheless, the scalability of Ethereum is limited to 25 transactions per
second; and it is prone to security breaches due to Solidity Language, causing storage
to be compromised.
Qtum. Qtum is a hybrid platform that enables smart contract technology on the
existing blockchain. It allows execution of smart contracts on mobile or Internet-of-
Things (IoT) devices. Qtum is designed as a toolkit for robust and modular scripting on
mainstream blockchains. New to the market, hence it is still in the testing phase and
vulnerable to hacks especially at the exchange level [7].
Hyperledger Fabric. Hyperledger Fabric is an open-source, permissioned distrib-
uted ledger platform hosted by The Linux Foundation [3]. It is an extensible blockchain
system featuring modular consensus protocols, which allows organizations to create
and maintain a private channel with other specified members. This permissioned
blockchain technologies permits the participants to authenticate themselves in
transactions but also to prove authorization to perform a variety of system operations.
The scalability and flexibility of Hyperledger Fabric are promising; nevertheless, its
end-to-end throughput remains controversial as several benchmarks were concluded
with mixed results [4].
EOS. EOS.IO is released in 2018 as open-source software to overcome the scalabil-
ity issues of mainstream blockchains such as Bitcoin and Ethereum [8]. The software
utilizes Delegated Proof of Stake (dPoS) consensus algorithm, in which transactions
are validated by a set of master nodes known as ranked delegates. The development and
maintenance of EOS such as ownership structure offer free usage for users, allowing
validators to use resources according to their stakes, hence, no there is no transaction
fee. However, it is still vulnerable to threats like numerical overflow, especially when
arithmetic operations are executed, resulting in unchecked contracts, which eventually
leads to loss of assets.
Aeternity. Aeternity was established by Yanislav Malahov in 2016 as a scalable
blockchain platform [9]. It enables high bandwidth transactions, smart contracts with
built-in oracles. The state channel and oracle system ensure a high degree of flexibility.
The state channel allows functions to be initiated and fulfilled off-chain and prevents
congestion of smart contract functions executing together. Furthermore, if a smart con-
tract is disputed, the signed off-chain transaction can use used as a record for examina-
tion. The oracle allows real word data to be used in terms of smart contract functions.
It connects to the internet and monitors the outcome in the contract, so that when results
are stored, the contract will be executed. Withdrawals of token take a lot of time which
makes users’ asset high likely to be prone to get compromised due to the risky ex-
changes.
BigchainDB. BigchainDB is an open-source software that combines both block-
chain properties and database properties for production-ready use cases [10]. It can be
built on top of a variety of existing distributed databases. The security of each node and
the entire network are extrinsic. It depends on the network built on how the rule of
security for each node is. The higher standard of security of the network of nodes, the
better it is able to withstand attacks. BigchainDB allows developers to deploy a block-
chain proof-of-concept easily as compared to other blockchain technologies.
2.1 Benefits in E-commerce with Blockchains
The use of blockchain technologies in online shopping has been evolved beyond de-
centralized digital payments towards blockchain-based online and offline services [11].
The following highlights the benefits of blockchains in the context of e-commerce.
High Security. Blockchains provide transactions to be immutable due to the imple-
mentation of the technology. In the event that a block is altered, the block would be
rejected by most of the nodes and the information would not persist in the ledger. This
is because the block is hashed using the hash of the previous block which would link
the blocks together and creating a chain. If a block is altered the data would also affect
the hash for the subsequent block which in turn causes the nodes in the network to reject
it. This ensures that the information has not been tampered with which would ensure e-
commerce ecosystems for customers, suppliers, sellers, and shipping companies to
highly protected.
In addition, the use of smart contracts eliminates an external third-party entity when
doing a transaction exchange, without compromising the security in the midst of the
transaction process. Smart contracts are designed to automate tasks based on the preset
rules, omitting any forms of interference by any signatories.
Lower Transaction Cost. Retailers are often required to pay commission fees to
use e-commerce platform. This is inevitable if they want exposure to a large audience
that an e-commerce platform provides. These fees do not yet include the cost of using
payment gateways such as PayPal and credit card which would further decrease their
profit margin. Retailers will have little choice but to increase the price of these products
to gain profit from selling on the platform. These increase in price would also cost
customers to pay more for the product. With the introduction of blockchain technolo-
gies into these, it would remove the need for the intermediaries, and these payments
can be made directly between the retailer and customer reducing the cost of the product
and increasing profit.
Traceability. Tracing an order item back to its root origin proves to be an arduous
task when products are traded using a centralized traditional E-commerce platform.
Therefore, with blockchains, it allows an audit trail whenever an action is done during
the transaction. This help to verify the authentication of the transaction, preventing
frauds. This is especially useful for order tracking as blockchain allows immutable
tracking. This means that customers are able to locate where their products, whether
their products are genuine and what is contained etc. This helps to maintain the integrity
and authenticity of products.
Trustless. In traditional forms of e-commerce platforms, information used by retail-
ers is owned by the platform. These platforms offer guarantees and reviews of seller
whereas, for payment gateways, they offered to keep safe of the transaction amount till
its verified. This undeniably gives absolute controls to these platforms and gateways
over their customers. Furthermore, trusting these platforms and gateways to store huge
amount of confidential data posed a risk in terms of privacy issues, which is why these
companies are the choice of targets for fraud and hacking attempts.
Therefore, blockchain can be employed to create a system where trust is no longer
required. The cryptography in blockchain can completely eliminate the external inter-
mediary. This allows the customers to run the complex consensus protocol unani-
mously, hence allow them to agree securely the type of data to be added into the ledger
while ensuring data integrity. By doing so, it builds a base of trust which also removes
the third party and thereby, reducing the transactional cost.
2.2 Challenges of Blockchain Adoption in E-commerce
Blockchain technologies come with their own challenges. Factors ranging from policy
discordances to technical limitations hinder the adoption of blockchain in e-commerce.
There are a number of the existing obstacles discussed as the following.
Scalability. The limited block size of blockchain technologies has resulted in the
loss of scalability as compared to modern payment processors such as Visa or Master-
card. According to data shown, the Visa payment processor is able to do around 48,000
transactions per second whereas, for blockchain protocols such as Bitcoin, it is only
able to reach 7 transactions per second with a fixated block size of 1MB [2]. In order
to be on par with these modern payment processors, one solution is to increase the limit
of the block size. However, by doing so, it affects the number of power consumption
due to the huge amount of data resources.
Furthermore, increasing the limit of block size creates a strain on the security as the
probability of blocks being orphaned increases which inevitably affects the bandwidth
cost and validation cost. The higher the limit of the block size, the larger the transaction
load and with a decrease in transaction fee, security decreases.
Privacy. Public blockchains simulate the current World Wide Web, enabling public
access of data to all participants [12]. They ascertain that the recorded data are readily
available and reduce transactional costs. However, public access blockchains may im-
peril data privacy. Blockchain technologies depend on the write-only data process
which makes them unable to remove any information [13]. Moreover, their core de-
pends on a distributed data storage system where the same data is stored in the entire
node network. Therefore, any forms of changes require an agreement made by the entire
node network, making any removal of data difficult. Data control to public blockchains
has raised an issue, especially when sensitive or confidentiality of data is involved as
there is no way to rectify damages once these data are uploaded.
Compatibility. Despite blockchains providing transparency and immutable of data
information, the efficiency of entering information might be an issue. For example, in
existing solutions such as supply chain management systems, legacy systems are usu-
ally used to store information. Therefore, this results in incompatibility in data and sys-
tem sensors which makes data access arduous. By integrating blockchain into supply
chains, it may cause an overload of data for the system to handle. Furthermore, this may
affect the quality of data stored into the ledger, causing inaccurate data assumptions in
the following chains.
Acceptance. In order for e-commerce to incorporate blockchain, it will require a lot
of investments in using these new technologies. This is an undeniable step in order for
it to be viable so as to provide traceability long the entire blockchain network. Further-
more, the issue to strike a balance between confidentiality and transparency of data in
order to re-engineer business processes to use this distributed ledger to store and share
data information requires in-depth discussions. It would be possible to access compa-
nies business secrets and activities if all the information is stored in the ledger, result-
ing in loss of confidentiality. Therefore, this may lead to a reluctance for e-commerce
companies to embrace blockchain wholeheartedly due to the culture of acceptance,
organization, and standardization of its uses.
2.3 Existing Blockchain Solutions in E-commerce
With the rising bloom of online transactions, many e-commerce platforms have adopted
a decentralized distributed ledger technology to reach out to their consumers to ensure
efficiency with minimal cost. These are some of the existing solutions in e-commerce
that imbued with blockchain as the following.
Legitimate Product Review System. Genuine reviews found online are usually
based on assumptions. Positive reviews might be generated by sellers in order to in-
crease their turnovers and negative reviews written by competitors to diminish fellow
competitors. Also, there is no form of incentive for customers to leave reviews even if
there were sales based on their reviews. The use of blockchain technologies can help to
resolve the reliability of the verification of reviews. Furthermore, through referral sys-
tems, customers can be rewarded if their post leads to sales due to the ability of block-
chain enabling to track all transactions. For example, Zapit, an US-based company
utilized this to ensure compensations to both the reviewers and moderators, encourag-
ing validity to ensure a win-win situation.
Supply Chain Management System. International shipping has proven to be a chal-
lenging problem faced by Shipping freights companies worldwide. In order to ship re-
frigerated goods from one country to another, a series of paperwork such as stamps and
approvals are required in order for the process to be completed which result in high cost
[14]. The use of blockchain technologies helps to eliminate inefficiency and digitize
paper records. For example, Maersk, the world’s largest shipping company, in collab-
oration with IBM, uses Blockchain technologies called TradeLens to provide an audit
trail, allowing businesses to exchange information securely, connecting the vast global
network of shippers, carriers, ports, and customs, so that all participants are able to
access information in a unified view.
Employee Benefits System. An internal e-commerce platform has been successfully
implemented for the Hainan Airlines (HNA) group to enrich employees benefit options
[15]. It enables employees to have more options to claim their benefits and empowers
suppliers with an additional channel to sell their products. The study revealed that
blockchain of value in several ways: 1) cryptocurrency issuance, 2) sensitive infor-
mation protection, and 3) no institutional intermediary. The implementation of such a
win-win arrangement extended across three phases.
With the help of blockchain technologies, a number of existing solutions have been
explored in e-commerce; nevertheless, there are vast fragmentations and differences in
scales and sizes of blockchain applications. Furthermore, the full utilization of block-
chain properties in e-commerce is yet to be investigated.
3 Proposed Blockchain Applications
Based on the survey of blockchain technologies in e-commerce, this study takes an
important step to propose two applications for social shopping and loyalty program.
These e-commerce applications are designed with the utilization of blockchain proper-
ties such as traceability and trustless in order to enhance customer engagement. They
allow platform operators to embrace blockchain with minimal changes in technological
infrastructure; thereby potentially leading to better compatibility and higher ac-
ceptance.
3.1 Social Shopping
Fig. 2. Blockchain-based Social Shopping
The first proposed solution provides businesses and consumers a reinvented implemen-
tation of a social shopping functionality using blockchain technology as shown in Fig.
2. The prices of a product or service lower when the number of people who commit to
buying increases [16]. This empowers the customers with a negotiating factor with the
supplier to enjoy better savings as compared to purchasing product from brick and mor-
tar establishment which most of time uses a fixed pricing model [17]. With the use of
blockchains, social shopping leverages on the linked data structure and traceability of
the technology to offer multi-tier dynamic pricings for groups.
1. Shopping on an e-commerce website. The key benefit of social shopping for
customers is that they would have the potential to get a discount of the product
being purchased as the price of a product is often the most important factor to
customers. It would draw more traffic to shopping on the e-commerce website
and increase the sales of the products using the customers’ social connections.
2. Joining social shopping. The model of social shopping is associated with
time-limited deals as shown in Fig. 3 (A). Shoppers would browse the e-
commerce platform and discover the products on multi-tier promotions. The
preview of dynamic pricings as shown in Fig. 3 (B) would be a differentiating
factor for customers to buy a product.
Fig. 3. Social Shopping - Prototype
3. Blockchain-based invite code. Each customer that join the social shopping
would be added as a transaction on the blockchain with related information
such as the promotion-based product, payment and shipping particulars. A so-
cial invitation code will be assigned as the address to the customer’s block as
shown in Fig. 3 (C). The blockchain network can be public, private, or con-
sortium; in which network participants are decentralized peers to prevent dou-
ble claiming or duplicated invitations with the use of a consensus algorithm.
4. Inviting others to join the social shopping. This invitation code serves as an
important pointer to keep track of the multi-tier referring structure based on
the linked data structure of blockchain technology. Sharing it over emails, pri-
vate messages, or social networking sites would allow customers to unlock a
better pricing tier for the time-limited shopping deal.
5. Invited shoppers invite more social friends. The invited buyers would also
be incentivized to invite more social friends for further discounts on their pur-
chase. A new transaction will be added when a new buyer joins the social
shopping with an invitation code. This block will contain the linkages between
the inviter and the invitee, as well as, the parental referrers and the invitee if
any.
6. Gaining from multi-tier dynamic pricings. With the use of blockchain tech-
nology, the hierarchical relationships between referrers and invited buyers can
be captured on the chain with minimal computational complexity.
7. Tier calculation and final pricings. The system will enumerate customers’
tier and compute final pricings on the chain when the time-limited shopping
deal is expired. An example is illustrated in Fig. 4.
Fig. 4. An example of multi-tier social shopping
Participants are given discounts based on the number of items participants buy using
their invitation code, there are different tiers to state how much of a discount they get
as shown in Table 2.
Tier
Discount
Tier 1
Quantity of 1 to 4:
Discount of 5% of each item.
Tier 2
Quantity of 5 to 10:
Discount of 10% of each item.
Tier 3
Quantity of 11 and more:
Discount of 20% of each item
Table 2. Multi-tier Dynamic Pricings
In the example, User 1 would receive the tier 3 discount as Users 2, 3, and 4 join the
social shopping using User 1’s Invitation Code and also because User 5, 6 and 7 were
invited by users who were invited by users who were invited by User 1, the user would
also gain benefits from the invited users. The system is set up to allow users to back out
of the group buy within the time limit of the group buy so even if a user backs out of
the group buy, transaction records of the group buy are still available. The users who
were invited by and who invited the user are not affected other than the reducing of
quantity from the user backing out. From the diagram, if we use User 2 as an example
of the user who backed out. User 1 would have a reduction in the quantity from 11 to 9
which will change him from Tier 3 to Tier 2. Similarly, for users under user 2 being
user 5 and 6 would remain at their respective tiers.
Once finalized, the system will process the payment and begin the order fulfillment
procedures like shipping the products.
3.2 Loyalty Program
The second proposed solution is to use purchasing tracking based on a loyalty program,
integrating it with blockchain technologies as shown in Fig. 5. The solution will track
customers’ behavior when they are doing their shopping and stores each of their
behavior activities into data which will be hashed and store into a database using block-
chain [18]. The purchase tracking loyalty program will utilize a tier-based point system
where there will be a different level of a point system in order to unlock different kinds
of rewards. The more point accumulated by the customer, the better the rewards
achievements unlocked. The points will be stored inside a single wallet where they will
be converted and redeem in the form of promo codes or coupons. These promo codes
will be enabled to use across major e-commerce loyalty programs.
Purchase tracking with blockchain resolves the problem of fragmentation of loyalty
points across various loyalty programs. It allows the use of a single wallet where re-
wards will be tokenized and stored as a single type of token which can be utilized for
other E-commerce loyalty programs. This prevents restrictions of redeeming rewards
within the system. The use of blockchain enables it to convert reward points to a token
for vast usage.
Fig. 5. Blockchain-based Loyalty Program
1. Shopping on any e-commerce website. Purchase tracking with loyalty pro-
gram helps to retain existing customers and used to attract new customers,
ensuring a better shopping experience. The advantage of blockchain is to in-
tegrate any e-commerce website into a loyalty network for a unified shopping
experience.
2. Making purchase transactions or taking rewardable activities. The shop-
ping behavior of customers will be tracked as demonstrated in Fig. 6 (A) in
order to tailor what kind of discount and gifts to ensure retention, attracting
customers’ attention. For example, when a customer buys a product, the
transaction actions will be tracked where it will be stored as data. Each of these
actions will have different loyalty points where some of them will have a max
cap per day to ensure that consumer will not abuse the system.
3. Session aggregation and blockchain forging. During a shopping session,
customer activities will be tracked and aggregated into an optimized data
block for forging. These data will be hashed and stored into the blockchain
network. Transaction data will be converted as loyalty points using a point
converter in the E-commerce platform. Each of the points will be referenced
to the previous block to ensure that there will not be double spending or du-
plicate points redeemed. These points will be tallied against the Reward Point
Tier System where the customer will be required to meet the minimum target
of the points for the different tier in order to unlock exclusive features catered
to the customers.
4. Viewing loyalty program. The loyalty program module lists down all the re-
ward history the customers had done during and after his shopping experience
as illustrated in Fig. 6 (B). This will enable purchase tracking of customers
behavior on what they had shopped which can be used for future analysis of
behaviors. The page also records the balance points as well as which tier the
customer belongs to. Each of the transaction id and name are generated by the
public and private key using blockchain so that there will not be any form of
double spendings or duplicates.
Fig. 6. Loyalty Program - Prototype
5. Redeeming gifts and coupon codes. The redeem module allows customers to
redeem their points where it will be generated into promo code based on the
amount converter. These promo codes will be able to use for their next pur-
chase of items. The redemption activity allows users to collect their promo
codes whenever they are awarded, or they unlock any discount features. The
points will also be utilized across other e-commerce platforms. Blockchain
allows each transaction to be recorded and access by multiple parties immedi-
ately.
The proposed blockchain-based applications in e-commerce have been developed in
client-side programs, which support both mobile and web interfaces. Connected to a
blockchain network via JavaScript Object Notation (JSON) serialization and deseriali-
zation, the implementation of these applications is highly compatible with major e-
commerce platforms. It fully utilizes blockchain properties to reshape customer expe-
rience with better security and minimal investment in technological infrastructure. The
study, therefore, demonstrates the utility and suitability of blockchain applications in
e-commerce.
4 Conclusion
Our study has several implications for theoretical literature and practice of e-commerce
and blockchains. First, the study provides a survey of existing blockchain technologies
and application in e-commerce. Second, we highlight key blockchain properties with
their benefits and challenges in online shopping sites. Third, the paper discusses several
existing e-commerce applications with blockchains and proposes new applications with
the full utilization of blockchain properties. These blockchain applications bridge the
gaps between technological concepts and prototyping to support researchers, develop-
ers, and platform operators for rapid adoption, better compatibility, and higher ac-
ceptance. Last but not least, we designed and implemented a platform which is capable
of transforming the current generation of e-commerce towards a more social and de-
centralized direction.
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Ahram, T., Sargolzaei, A., Sargolzaei, S., Daniels, J., Amaba, B.: Blockchain technology innovations. 2017 IEEE Technol. Eng. Manag. Soc. Conf. TEMSCON 2017. 137-141 (2017).
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